Keo Holdings Pty. Ltd. v oOh! Media Roadside Pty. Ltd
[2011] VCC 2003
•18 May 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
Case No. CI-08-04981
| Keo Holdings Pty. Ltd. and Diamond Wheels | Plaintiffs |
| Pty. Ltd. | |
| v | |
| oOh! Media Roadside Pty. Ltd. | Defendant |
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| JUDGE: | Lewitan |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 12, 16, 17, 18, 19, 23, 24 ,25 November 2009, 12 and 23 March 2010 |
| DATE OF JUDGMENT: | 18 May 2010 |
| CASE MAY BE CITED AS: | Keo Holdings Pty. Ltd. v oOh! Media Roadside Pty. Ltd. |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 2003 |
REASONS FOR JUDGMENT
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Catchwords: Repudiation of contract, implied terms, frustration
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. A. Barnett | Russell Kennedy |
| For the Defendant | Mr. A. Rodbard-Bean | Thomson, Playford, Cutlers |
| HER HONOUR: |
1 The defendant was the licensee of a site (the site) located on the south facing roof of a building situated at 27-31 King Street Melbourne pursuant to a sign licence agreement dated 22 November 2005. The building at 27-31 King Street is located on the western side of King Street on the left hand side of the street to those travelling north. The erection of a building opposite the site reduced the visibility of any advertising sign erected on the site. The defendant claims that it was entitled to terminate the sign licence agreement because each advertising sign erected on the site was no longer visible to vehicles travelling along Kings Way in a northerly direction towards the city. The plaintiffs as licensors of the site claim damages of $383,625 from the defendant for wrongful repudiation of contract.
2 The issues in dispute are:
(1) Whether the defendant was entitled to terminate the sign licence
agreement pursuant to an express term of the contract.(2) If there is no express term, is it an implied term of the sign licence agreement that the defendant may terminate if the visibility or the advertising value of the site is materially reduced. (3) Whether the sign licence agreement has been frustrated. The agreement
3 The sign licence agreement was entered into between Twenty-Five King Street Pty. Ltd. as trustee for the 27 King St. Discretionary Trust as licensor and Power Panels Pty. Ltd. as licensee (“the sign licence agreement”). [1] The sign licence agreement records the following “Background”:
[1] Exhibit 1.
A. The Licensor is the owner of the Land. B.
The Licensor wishes to grant and the Licensee wishes to take a licence of the Site for use by the Licensee for outdoor advertising and promotional material display purposes including the erection of an advertising display structure on the Site and licensing the use of the Site to third parties for outdoor advertising and promotional material display purposes.
4 The land is defined to mean the land and/or buildings owned by the Licensor and described in the Schedule as “the land and building situated at 27 King St.” The site is defined as “The area of 22.5m by 7.6m located on the south facing roof of the building situated on the Land.”
5 The sign licence agreement provides that “in consideration of the Licensee paying the Licence Fee the Licensor grants to the Licensee a Licence to use the Site for the Term for the Permitted Use”. Licence Fee is defined to mean the rent specified in the Schedule. Schedule B sets out the Licence Fee ($12,916.66 per month for years 2-5), the term of the agreement (5 years) and the commencement date (1 January 2006). The licence fee is payable monthly in advance from the commencement date.[2]
[2] Exhibit 1, clause 4.
6 Permitted use is defined to mean:
the installation or attachment of the Licensee’s Property to the Site (if required by the Licensee) and use of the Site for the display of advertising and promotional material, effecting repairs and maintenance to the Licensee’s Property and affixing and removing advertising and promotional material to and from the Site or the Licensee’s Property at regular intervals as required by the Licensee.[3]
[3] Exhibit 1, definitions (g).
7 Licensee’s Property is defined to mean a sign “installed in or attached to the Site by the licensee for the display of advertising or promotional material and includes any footings, foundations, supports, lights or lighting, services, equipment, machinery, platforms and other things fixed to or associated with the sign.”[4]
[4] Exhibit 1, definitions (e).
8 Sign is defined to mean:
any advertising display structure comprising any foundations and footings, a support pole, lights or lighting, installed or attached on the Site by the Licensee for the display of advertising or promotional materials and all Licensee’s Property associated with the Sign.[5]
[5] Exhibit 1, definitions (j).
9 Clause 11 of the sign licence agreement provides that if:
(a) all necessary Permits for the Permitted Use are not able to be obtained or maintained or are terminated or the Licensee is required by law to remove the Sign … (b) any Airspace Agreement for use of the Site cannot be obtained or is terminated for any reason; or (c) the Site becomes unsuitable for the Permitted Use for any reason outside the reasonable control of the Licensee (including the revocation or failure to obtain the renewal of any Permits for the Permitted Use); or (d) the Site is damaged by fire or other disabling cause so as to render the site substantially unfit for the Permitted Use; the Licensee may terminate this Agreement by 7 days written notice to the Licensor. If any condition referred to subparagrahs (a), (b), (c) or (d) is temporary, the Licensee may at its discretion, elect to suspend the payment of Licence Fee until such time as the Site once again is able to be used for the Permitted Use.
10 “Permits” is defined to mean “all permits, approvals and authorities from any government, municipal statutory, public or other authority or body at any time having jurisdiction over the Land or any part of the Land or the Permitted Use, necessary for the installation or maintenance of the Sign or the conduct of the Permitted Use.”[6]
[6] Exhibit 1, definitions (f).
11 Clause 20 of the sign licence agreement provides that:
This Agreement represents the entire agreement between the parties in respect of its subject matter.
The parties
12 The previous owner of the property was Twenty Five King Street Pty. Ltd. as trustee for the 27 King Street Discretionary Trust (the previous owner).
13 The plaintiffs purchased the property in January 2007 for $4.65 million. On 19 January 2007 the previous owner assigned its interest in the sign licence agreement to the plaintiffs.[7]
[7] Exhibit 2.
14 John O’Neill gave evidence that he was a director of Power Panels Pty. Ltd. in November 2005 when the sign licence agreement was made.[8] He also stated that he was joint managing director of sales and marketing of Media Puzzle Pty Ltd. which was the major owner of Power Panels Pty. Ltd.[9]
[8] Transcript p 419.
[9] Transcript p 420.
15 Subsequently Media Puzzle Pty. Ltd. was bought by Network Limited on 1 July 2007[10]. In April to June 2008 Network Limited rebranded the various companies it owned with the oOh! Media name. Network Limited, the ASX- listed parent company, became oOh! Media Group Limited. Media Puzzle Pty. Ltd. became oOh! Media Lifestyle Pty Limited and Power Panels Pty Ltd changed its name to oOh! Media Roadside Pty Limited (“oOh! Media”).
[10] Transcript p 265.
16 In summation, the defendant, Power Panels Pty. Ltd. is now called oOh! Media Roadside Pty Limited and is also a “fully controlled subsidiary of the ASX listed company”, oOh! Media Group Limited.[11]
The sign
[11] Affidavit of Chantel Ryan, oOh! Media in-house legal counsel, sworn on 12 October 2009, paragraph
17 The billboard sign located on the site is approximately 22.6 metres by 7 metres or 177 square metres.[12] The standard size of billboards recognised by the industry is 12.66 by 3.35 metres. Anything above that size is referred to as “spectacular”. [13]
The Northbank office development
[12] Transcript p 262.
[13] Transcript p 266.
18 Steven David Danaher, national sales manager of oOh! Media, stated that in 2005 the King Street and Flinders Street intersection had a tram overbridge and a driving overbridge and there was a car park at the southwest corner of the intersection.
19 The permit for the construction of the Northbank Office Tower was granted in September 2006[14]. The application for the permit was made in June 2006.
The right to terminate
[14] Transcript p 600.
20 On 29 September 2008 oOh! Media wrote to the plaintiffs and purported to terminate the sign licence agreement pursuant to clause 11(c) (“the termination letter”). The letter was written by oOh! Media’s legal counsel, Michael Calli, and stated:
As you are aware, a building is currently under construction and nearing completion directly opposite to the building on which the sign is installed, and that new building has substantially reduced the visibility of the sign. In particular, the sign is no longer visible from Kings Way while travelling into Melbourne, until adjacent to the development and looking upward.
oOh! Media is currently paying a licence fee of $12,916.66 per month under the
Agreement for the right to use the sign.
As a consequence of the reduced visibility of the sign, oOh! Media has received an average calendar month sales revenue of $3,100 over the last five months (equating to approximately $37,200 per annum).
During the five months prior to the construction of the building the sign’s sales revenue was an average $23,000 per calendar month (equating to approximately $276,000 per annum).
This revenue attributable to the sign has therefore reduced by over 86% since the sign became obscured.
The reduction in revenue received from the sign has not been caused or contributed to by any factor other than the obstruction of the sign by the building under construction. There are no market factors that have caused the diminution in revenue and oOh!media [sic] has been using its best efforts to secure advertisers for the sign. As you can understand, this has been difficult given the very low visibility (and therefore appeal to advertisers) of the sign.
As you know, oOh!media has approached the licensor (referred to as “you” in this letter) in good faith seeking a reduction in the monthly rent payable for the sign. You have refused to agree to any reduction.
oOh!media is entitled to terminate the Agreement for the reason that the sign has become unsuitable for the purpose of displaying advertising. Under clause 11(c) of the Agreement, oOh!media may terminate the Agreement if “the Site becomes unsuitable for the Permitted Use for any reason outside the reasonable control of the Licensee…” The Permitted Use includes “use of the Site for the display advertising and promotional material”. It is the nature of outdoor advertising that it must be visible to serve any useful purpose, and it is implied in the Agreement that the advertising and therefore the site must be substantially visible. This visibility must be commensurate with the licence fees being paid for the site, and currently this is not the case. The fact that the Permitted Use refers to “use” of the site for advertising indicates that the site must be useful for that purpose (ie, have utility for that function). It would not serve the parties’ intentions that a site without use for advertising would satisfy the Permitted Use.
While we acknowledge that the site remains accessible and that oOh!media is still able to install, remove and replace advertising as contemplated by the Agreement, this alone is not sufficient to remove oOh!media’s termination right under clause 11(c). The requirement under clause 11(c) is not whether “the Site becomes incapable of being used for the Permitted Use”, but rather whether “the Site becomes unsuitable for the Permitted Use.”
We also acknowledge that the sign is visible to the public from certain positions. However, the fact that the sign is capable of being seen from certain angles is, again, insufficient to remove oOh!media’s termination right. Clause 11(c) clearly states that oOh!media may terminate the Agreement if the site is unsuitable (ie, not appropriate or fitting) for the display of advertising. Clearly, the site may become substantially affected by an obstruction, despite the fact that the obstruction does not affect visibility from some angles. The positions from which the sign are visible are not suitable for outdoor advertising (given that the primary view from the Kings Way has been materially obstructed and passing traffic now need to look skyward to see it when virtually adjacent to the sign.
oOh!media’s right to terminate under clause 11(c) would be beyond doubt if the site was inaccessible or if the sign was entirely obscured. We acknowledge that, on the other hand, a minor or insubstantial obstruction affecting the sign would not be sufficient for the site to be unsuitable for advertising. However, the obstruction to the sign is substantial and has caused a dramatic reduction in advertising revenue. This obstruction is sufficient for the exercise of oOh!media’s termination right (and is precisely the kind of circumstance that clause 11(c) was intended to address).[15]
[15] Exhibit 3.
The evidence
21 The plaintiffs called Mark Keomanivong, Simon Cleal, Travers Beau Nuttall, Janelle Ryan, Keith Alexander Forbes and Ross Eden Smith to give evidence. An expert opinion by Mr. S. Townsend SC was tendered by consent. Several photographs were tendered. A view was conducted.
22 The defendant called Steven David Danaher, John Anthony Dollison, John Andrew O’Neill, Luke Brett and Jerrod Joseph Hart to give evidence.
Mark Keomanivong
23 Mark Keomanivong, property valuer, is a director of each of the plaintiffs. The plaintiffs bought 27-31 King Street in January 2007. The property was vacant when it was purchased and quite dilapidated. It is a six level building. It is proposed to refurbish the building for commercial offices and retail use. The only income generated from the property when purchased was by way of the licence fees for the site.
24 A representative of the defendant, Jerrod Hart, contacted Keomanivong by phone and requested a meeting. He came to see Keomanivong about one week before 27 August 2008. The prime topic for discussion at the meeting was the obstruction of the sign on the site due to the construction of the NorthBank Office Development. Hart told Keomanivong that the obstruction would impact upon the value of the site and that the site would only be worth approximately $3000 a month. He asked for a reduction in the amount that the defendant was paying in licence fees. Keomanivong did not agree. Keomanivong forwarded an e-mail to Hart on 27 August 2008.[16] There was no further contact.
[16] Exhibit 4.
25 After he received the termination letter, Keomanivong asked the project managers for the 27-31 King Street project, Simon Cleal and Travis Nuttal, to relet the site. There was no advertising on the site from 29 September 2008 until 1 November 2009. The plaintiff companies sought the engagement of every major large format advertising company in the country to sell the site.
26 Keomanivong said that he approached a gentleman from Bilmor Holdings Pty. Ltd. and asked him if he was interested in leasing the site. On 7 October 2009 the plaintiffs entered into a licence agreement with Bilmor Holdings Pty. Ltd. for a period of six months.[17] The commencement date was 1 November 2009. The licensee, Bilmor Holdings Pty. Ltd., has an option to renew the license agreement for a further term of six months to be exercised by written notice not less than three calendar months before the end of the term of the licence. The licence fee was $35,000 plus GST for the full term if paid on or before the commencement date, otherwise $45,000 plus GST for the full term payable by equal monthly instalments. On 14 October 2009 Bilmor Holdings Pty. Ltd. paid $38,500 to the plaintiffs.[18]
Simon Michael Cleal
[17] Exhibit 5.
[18] Exhbits 6 and 7.
27 Simon Michael Cleal is a director of Massie Pty. Ltd. Massie Pty. Ltd. is a project manager company and manages property developments. Massie Pty. Ltd. is the project manager for 27-31 King Street.
28 Cleal said that as part of his role with Massie he was aware that there was a sign on top of the building and that there was a licence agreement in relation to that sign. In early October 2008 Keomanivong told him that the licence agreement had been terminated and asked him to relet the sign. Cleal hired a gentleman by the name of Matthew Loe in late October or early November and asked him to relet the sign. Matthew Loe worked for Massie Pty. Ltd. in December 2008.
29 Cleal said that he printed out a list of media onsellers from the Australia Media Association. He crossed out oOh! Media. Cleal asked Matthew Loe to approach all of the other companies on the list to see if they were interested in leasing the sign.[19] Matthew Loe forwarded an email to Michelle at Octupus Media regarding the outdoor signage of 27-31 King Street stating that the billboard is open to tender on a contract basis.[20]
[19] Transcript p 162.
[20] Exhibit 9.
30 Cleal also had a meeting with Peter Franklin of APN outdoor at 27-31 King Street, Melbourne. Cleal asked Peter Franklin whether he was interested in leasing the sign.[21] The plaintiffs did not enter into an agreement with APN in relation to the sign. Cleal asked Peter Franklin whether he could provide an expert who could help him lease the sign and provide information on printing signs and installing signs so that they could re-establish income from the sign.
[21] Exhibit 10.
31 Cleal subsequently had a meeting with David Nettlefold. David Nettlefold is a sign expert who previously had some involvement with leasing the sign.[22] David Nettlefold was asked to attempt to lease the sign. After his meeting with David Nettlefold, Cleal instructed Travers Nuttal to try and lease the sign.[23]
Travers Beau Nuttall
[22] Transcript p 171.
[23] Transcript p 175.
32 Travers Beau Nuttall, assistant development manager for Massie Property Solutions, started working at Massie Pty. Ltd. on 16 February 2009. As part of his job, he attempted to relet the sign on top of 27 King Street. In May 2009 Nuttall took photographs of the sign from the corner of Flinders St and King St.[24], from outside the Waterfront Restaurant at Southbank[25] and from the pedestrian walkway at or about the entrance into the Crown Casino car park on King Street bridge.[26] Those photographs indicate that the sign was clearly visible to pedestrians at each of those locations.
[24] Exhibit 11, p 349 of the Court Book.
[25] Exhibit 11, p 350 of the Court Book.
[26] Exhibit 11, p 351 of the Court Book.
33 Nuttall sent the photographs that he took to Michelle at Octupus Media.[27] He also contacted Leah Whitford at IOM (Independent outdoor media).[28] In cross-examination Nuttall agreed that none of the advertising companies he contacted had shown any interest in the site.[29]
[27] Exhibit 12.
[28] Exhibit 13.
[29] Transcript p 207.
34 Nuttall printed the train timetables from the Connex website and analysed those timetables to ascertain how many trains on the Pakenham line run to and from Flinders Street Station to Southern Cross Station. He ascertained that there were 15 train lines that fed into the city loop.[30] Based on his examination of the timetable, he estimated that a minimum of 318 trains per day were scheduled to pass between Flinders Street Station and Southern Cross Station on the Pakenham line from Monday to Friday during the week. On Saturday and Sunday there are 190 and 170 trains respectively. Looking at the Pakenham timetable, Nuttall estimated that approximately 1950 trains pass by that site every week and 100,000 trains pass by each year.[31]
Janelle Ryan
[30] Transcript p189.
[31] Exhibit 14, transcript p 190 and 192.
35 Janelle Ryan is the manager of information services in the public transport division of the Department of Transport. She manages a team of data analysts who collect data about public transport.
36 The Department of Transport has estimated that there are 899 trains scheduled to travel between Flinders Street Station and Southern Cross Station on a standard week day. Janelle Ryan does not have any data in relation to the amount of people that may travel between those two stations. Janelle Ryan estimated that 205,400 passengers entered the City Loop stations on an average week day in the 2008-2009 financial year. The City Loop incorporates Flinders Street Station, Southern Cross Station, Flagstaff Station and Parliament Station.
Keith Alexander Forbes
37 The plaintiffs called Keith Alexander Forbes, company director of Buckle Outdoor Advertising Pty. Ltd. Buckle Outdoor Advertising Pty Ltd. owns the Buckle Signboard which is located on the right hand side of King Street and is visible to vehicles travelling towards the city. The Buckle Signboard is positioned to face incoming traffic on Kings Way.[32] The sign went up some 16 to 18 years ago.
[32] Transcript pp 223-224
38 Buckle Outdoor Advertising Pty. Ltd. engaged Eye Corp Pty. Limited as its agent to sell the Buckle Signboard to potential advertisers. Forbes gave evidence that the income received by Eye Corp Pty. Limited in relation to the Buckle signboard was:
Month Net Media Sales
August 2007 $6,237.00 September 2007 $8,019.00 January 2008 $4,455.00 February 2008 $4,455.00 August 2008 $5,400.00 September 2008 $10,047.60 October 2008 $11,628.70 November 2008 $14,063.00 January 2009 $1,857.14 February 2009 $7,193. 27 March 2009 $7,091.18 April 2009 $7,432.09 May 2009 $3,853.14 June 2009 $5,238.38 39 In cross-examination Forbes agreed that the sign was not positioned to take advantage of pedestrian traffic walking across the King Street bridge. It was not positioned to take advantage of train travellers on the City to Pakenham line.
Ross Elliot Eden-Smith
40 Ross Elliot Eden-Smith is the business manager for Eye-Drive Roadside Billboards. He oversees roadside billboards. One of his accounts is at 500 Finders Street, the Buckle sign.[33] Eye Corp Pty. Limited represents the site in the marketplace. Eye Corp Pty. Limited sold the sign in the months of August 08 until June 2009. Eden-Smith said that there was some voidage as “rarely does any site have advertising 12 months of the year.”[34]
Steven David Danaher
[33] Transcript p233.
[34] Transcript p 236.
41 Steven David Danaher, national sales manager of oOh! Media, gave evidence that the clients of oOh! Media are large multinational clients who deal with advertising agencies as part of their national advertising campaigns.
42 Danaher stated that he had knowledge of the 27-31 King Street site prior to it being taken on to the books of oOh! Media. He said that he knew that it was one of the high profile sites in the Central Business District (CBD).
43 Danaher said that the size of the site, about 177 square metres[35], meant that it was on par with the largest sites in Australia. In Victoria the sign was one of the top three billboards of oOh! Media and in Victoria the sign was in its top ten locations.[36]
[35] Transcript p 262.
[36] Transcript p 262.
44 Danaher said that the value of a site is determined first by the length of time that you can view a billboard in your car, without having to move your head away from the direction you are travelling in. Danaher stated that the site had head-on viewing by multiple lanes of slow moving traffic. The second factor is the size of the billboard. This was a spectacular billboard.[37] The larger the size, the more effective the advertisement. The third factor is the location. If the site is in the CBD, advertisers have the opportunity to target the number of cars and the number of people who will drive past that site.[38] The traffic in this case comes from the south eastern suburbs of Albert Park, Brighton to Armadale, Malvern, Caulfield, all along the Princess Highway which becomes Kings Way and also from the Nepean Highway as far down as Moorabbin.[39] Danaher described the audience measurement called Roam which is used by the industry to give an estimate of the potential reach of the site. He referred to the site card exhibited D6. The reach of this site was 39.4 which meant that in a 28 day period almost 40 per cent of people aged over five plus who live in the core area will be impacted by that site. The core area is a 12 kilometre radius. The frequency on the site card[40] refers to the amount of times in a 28 day period that those individuals will see that site. In this case almost 40% of that population will see that site, on average, 3.7 times in a 28 day period.
The Northbank office development
[37] Exhibit D6.
[38] Transcript p264.
[39] Transcript p 265.
[40] Exhibit D6.
45 Danaher said that he first noticed building development at or around this site just prior to Christmas in 2007. He noticed a crane sticking out of the South West corner of Flinders Street when he exited the tunnel at Crown Casino. As he came down Kings Way, he could see concrete footings up to the height of the rail bridge and the elevator shaft. He attended a meeting with his development team and asked them to keep him posted as to the building development. oOh! Media continued to sell the site to the national market.[41] oOh! Media sold the site to Calvin Klein and others and used the site to continue to sell other inventory.[42]
Contract 6039-Calvin Klein- 31 March 2008-27 April 2008 and 28 April 2008 - 25 May 2008[41] Transcript p 269.
[42] Transcript p 269.
46 Danaher said that in March 2008 he received a call from a very senior media buyer, Brett Elliott, from Mediacom to inform him that he had driven through Kings Way and the viewing of the site was impaired by the Northbank office development. Mediacom is an advertising agency which is the second largest user of outdoor advertising in Victoria. Danaher said that he grabbed the sales manager and drove along Kings Way. Danaher stated that it was very clear that the Northbank Office development had now obstructed about 80 per cent of the billboard.[43] Danaher said that he looked at the advertising schedule and observed that Calvin Klein was due to appear on the billboard in April 2008.[44] Danaher then gave the following evidence:
[43] Transcript p 271.
[44] Transcript p 270, see also transcript p 281.
What did you then do?
--- I went back and made a decision to notify the media
agency that the site that they had bought some three to
four months prior, no longer was - the site no longer had
the viewing, that they had bought at the time. They then
demanded that I offer some form of compensation for the
site - for buying the site.
What did the defendant then do as a result of that demand? --- We
looked at our options and the only option was to give him
a free month of advertising at our cost.
47 In cross-examination Danaher repeated his evidence that oOh! Media did not charge Calvin Klein for the use of the site from 28 April 2008 to 25 May 2008 because of the reduction in visibility.[45]
[45] Transcript p 537.
48 However Danaher’s evidence is contrary to the e-mail he forwarded to Michael Cali on 19 March 2009 which contained details of the bookings obtained on 27 Kingsway from July 2007. [46] In that e-mail Danaher stated that the booking for contract numbered 6039 with Calvin Klein was part of a larger deal and that the client was kept up on site for an additional month free of charge “due to install issues.”[47]
[46] E-mail forwarded 19 March 2009 from Steve Danaher to Michael Cali, exhibit D22.
[47] E-mail forwarded 19 March 2009 from Steve Danaher to Michael Cali, exhibit D22.
49 Danaher did not contact Toshiba who advertised on the site in March to advise them of the reduction of the visibility of the site. Toshiba paid $33,000 for advertising on the site from 3 March 2008 until 30 March 2008.[48]
[48] Transcript p 535.
50 Danaher said that he immediately informed his national sales team about the destroyed capacity to view the site and immediately took the site card in its current form off the system. The site was placed on what is known as the distress list[49]; it went to the bottom of the pile.
Contract 6563 – Connex – 26 May 2008 – 22 June 2008
[49] Transcript p 281.
51 After the no charge period for Calvin Klein, the site was let to Connex from 26 May 2008 to 22 June 2008 for $5000[50]. In his e-mail to Michael Cali, Danaher stated that Connex booked the site “only because the site was visible from the train line and the rate was within their band of sites.”[51] In cross-examination Danaher conceded that Connex valued the site because it was visible from the train line.[52]
Contract 6856-Crazy John’s- 23 June 2008 until 17 August 2008
[50] Transcript p 282.
[51] Exhibit D 22.
[52] Transcript p 555.
52 oOh! Media then let the site to Crazy Johns as a distress sale for $3000 for the period from 23 June 2008 until 20 July 2008[53]. However due to access issues as a result of renovations to the building, the site had to be given away free of charge for the following period (21 July 2008 until 17 August 2008) as compensation. In cross-examination Danaher conceded that Crazy Johns is a national advertiser.[54]
Contract 7133 – Fosters Group – 15 September 2008 – 12 October 2008
[53] Transcript p 284.
[54] Transcript p 561.
53 Danaher stated that the site was booked to the Fosters Group by mistake. “I then had to provide compensation in the form of other sites at our own cost.”[55] However in his e-mail to Michael Cali, Danaher stated that the “site was provided as added value to give an additional site, but the client was prepared to pay no more than 5k for the site.” The Fosters group booking was from 15 September 2008 to 12 October 2008 and ran into a period after the agreement was terminated.[56] The letter of termination was written on 29 September 2008.
Contract 6885 – Calvin Klein- 13 October 2008 – November 2008
[55] Transcript p 285.
[56] Transcript p 563.
54 Danaher’s evidence in relation to the contract to let the site to Calvin Klein in the period from 13 October 2008 until November 2008 is highly unsatisfactory. The contract was prepared and signed on 18 August 2008. According to Danaher:
The booking was made by a junior agency person at MediaCom who requested to book the same sites that were booked in the April component by a junior at our work.[57]
[57] Transcript p 564.
55 Danaher said that “the client was in Melbourne and was shown the site”. “They demanded that it be pulled down and placed at our cost”.[58] The basis of the complaint was “that they couldn’t see the site.”[59] In the e-mail forwarded to Michael Cali on 19 March 2009, Danaher stated:
Contract 6885-Calvin Klein – this was booked in August – as a request from the client to copy their original booking in March 31st. The client was in Melbourne and was shown the site – they demanded that it be pulled down and replaced at our cost. We did this – providing a site at Melbourne central. This included having to print a new skin and install all at oOh! Media’s cost.[60]
[58] Transcript p 565.
[59] Transcript p 565.
[60] Exhibit D 22.
56 Danaher said that oOh!Media received $5000 for that four week period. Danaher did not believe that Calvin Klein put a skin up on the sign. He said that oOh!Media “actually had to give and pay for a skin to be placed up on another site once the mistake made by the junior agency person was realised.”[61]
[61] Transcript p 564.
57 In cross-examination Danaher was asked:
…during that period you received $5000…, there was no complaint made for the visibility of the site by Calvin Klein, do you agree or disagree with that?...I disagree.
In fact the only reason that you had to give compensation to them is because you had installed the skin on a sign board that had been terminated?...At the time I had no idea that anything had been terminated.[62]
Just to make it clear, what I am suggesting is that it’s come to your attention that this site has been terminated, that they can’t advertise up there because you have already terminated the agreement?....That’s not true.
And it’s on that basis that you have compensated them by finding them another site because you’ve had to pull down their skin on a site which you have terminated the agreement on?...No.
Do you agree with that or not?..I do not.
Again, they are another national/international company? …Calvin Klein?
Yes?...Yes.[63]
[62] Transcript p 566
[63] Transcript p 567
58 However the media contract between oOh! Media and Mediacom in relation to Calvin Klein indicates that on 7 July 2008, Calvin Klein agreed to display its advertising sign at 27-31 Kings Way Melbourne for the period from 13 October 2008 to 9 November 2008.[64] The amended booking confirmation forwarded by oOh! Media to Outdoor Network Australia Pty. Ltd., and dated 3 November 2008, shows that oOh! Media confirmed the booking by Calvin Klein at 27 Kings Way for the period from 13 October 2008 to 9 November 2008 for the sum of $5000.[65]
[64] Exhibit 20.
[65] Exhibit 19.
59 Further the defendant forwarded the following e-mail to Mediacom on 20 October 2008:
From: Breanna Elston
Sent: Monday, 20 October 2008
To: Bernadette. [email protected] cc. Steve Danaher Subject: cK- Kings way Site Issue Importance: High
Dear Bern,
Thanks for your time on the phone earlier today. As I explained unfortunately I
have just learnt that due to a legal dispute between oOh!media and the site
owner of “MP/PP2-033:Melbourne, 27 Kings Way” this site will be permanently
removed from our inventory resulting in the current advertiser being removed
tomorrow.
Unfortunately this directly affects cK’s current bookings because this site is
currently displaying cK Jeans, and cK Eyewear is due to be installed on the 10th
November.
This issue only came to light late last Friday the 17th of October and we have
been working around the clock to come to an agreement with the site owner to
best benefit cK.
oOh!media are endeavouring to provide cK with the best possible solution to
resolve this issue.
Are you able to please find out from the client whether cK Jeans could take up
a replacement site for the lunar period w/c 10th November, which will be running
the same time as the replacement site for Eyewear? This will assist us in
providing a more than satisfactory solution as we have very limited unsold
inventory this month.
Feel free to give me a call for further information.
I will wait to hear from you.
Thanks,
Breanna
Breanna Elston
Group Business Manager
oOh!media.[66]
[66] Exhibit 21.
60 When cross-examined about the contents of the e-mail forwarded on 20 October 2008, Danaher’s response was evasive and unsatisfactory.[67]
[67] Transcript pp 570 – 573.
61 Having considered the whole of the evidence, I have formed the view that Danaher was a witness who in effect, would say what he thought would assist the defendant’s case as opposed to a witness who was endeavouring at all times to give a truthful and accurate account of the facts. I do not accept his evidence that the site had no commercial value because of the loss of visibility. The evidence indicates that oOh! Media continued to rent the site after March 2008 although at a lesser profit. Danaher’s evidence that Calvin Klein cancelled its booking because of the obstruction of the site by the Northbank office development is not borne out by the documents.
62 Danaher agreed in cross-examination that, from the period when the advertising site was taken from the national inventory in or around April 2008, the site was not really offered for sale through the open market, other than in distressed situations.[68] A new site card was not made up which reflected the status of the view.[69] During that period the site was sold to national advertisers such as Crazy Johns, Calvin Klein, Betstar and the Foster Group “for money”.[70]
[68] Transcript p 574.
[69] Transcript p 543.
[70] Transcript p 575.
63 In cross-examination Danaher conceded that the site would be available twice or three times a year.[71] In cross-examination Danaher agreed that there was a minor slow down at the end of 2008 and that the Outdoor Media Association had publicly acknowledged that the overall market for large formats was down roughly by about 9 per cent.[72] Danaher said that there was a minor slow down at the end of 2008 but that the market for them had been quite good.[73]
John Anthony Dollison
[71] Transcript p 408.
[72] Transcript p 577.
[73] Transcript p 580.
64 The defendant called John Anthony Dollison, chairman of Australasian Marketing Group Limited since 2004, to give expert evidence.[74]
[74] Transcript p 323; Exhibit D 7.
65 Dollison referred to the photograph of the sign taken in 2000 and stated that it showed a large build up of traffic so that there is good “dwell time” for people to see the sign.[75] Dollison referred to the 39.4 per cent “reach” measurement listed on the site card which indicates that the sign reaches 39.4 per cent of the traffic flowing through this particular area over a month.[76] He said that the frequency listed on the site card indicated that, on average, 39.4 per cent of the people in that catchment area would see this sign 3.7 times on average in a month.[77] He said that the site would command rental of $20,000 per month.[78]
[75] Exhibit D8, photograph 21; transcript p 310.
[76] Exhibit D8.
[77] Transcript p 312.
[78] Transcript p 312.
66 Dollison said that he had travelled down Kings Way out of the Crown tunnel and passed the site that morning. He said that sitting in the passenger seat of a taxi, “the sign had no complete visibility. You see the right side of the sign for a very short distance but the sign is not visible to a passenger in a car. Even when you get down to the bottom of the intersection, the roof of the car stops any visibility of the sign. At the top, the building blocks it and the best you get is a slight view of the right side, and of course people read from left to right so they don’t know what’s on the sign. It has absolutely no advertising value coming down Kings Way from a motor vehicle.”[79] Dollison said that you cannot see the sign if you are stopped at the lights at Flinders Street and Kings Way.[80] He said that you have actually got to duck down to see it because it is blocked by the roof of the car. Dollison acknowledged that he is six foot two and was seated in the passenger seat. [81] I do not accept this evidence about the visibility of the sign. Dollison was adamant that the sign could not be seen from the intersection if people were seated in a car. This is contrary to the other evidence led by the defence. For example, Danaher gave evidence that after passing under the railway bridge, “you get one more slightly impeded view as you get under the rail bridge [i.e at the intersection]”.[82] The defence were even more specific in its purported termination letter, when it stated that “passing traffic now need to look skyward to see it when virtually adjacent to the sign”.[83]
[79] Transcript p 313.
[80] Transcript p 337.
[81] Transcript p 338.
[82] Transcript p 272.
[83] Exhibit 3.
67 In his report Dollison stated that in his opinion “given the significant cost of producing artwork and installing artwork (between $5000 and $20,000) and the significant advertising costs in excess of $20,000 per month, the site now has no saleable visibility from KingsWay, nor from any very limited side view on Flinders Street”.[84] Rarely do people go out and advertise to an ubiquitous audience.
[84] Exhibit D10.
68 In cross-examination Dollison said that he had made no allowance for train commuter traffic when writing his report because people on trains do not see much of the outdoor advertising, other than the advertising that is actually on the platform.[85] He agreed that this is a sign which is in very close proximity to the train track itself and was spectacular in nature.[86] He agreed that Southern Cross Station and Flinders Street Station are two of the busiest stations in Melbourne. He said that you had to physically turn to look at the sign from the train.[87]
[85] Transcript p 375.
[86] Transcript p 378.
[87] Transcript p 379.
69 Dollison was shown a site card for Victoria Prahran[88]. The description of the site in that site card is:
This site targets traffic heading inbound from suburbs between Malvern & Dandenong. It is situated to impact inbound traffic from the Eastern suburbs as well as those travelling via trams into the CBD & St. Kilda Rd.
[88] Exhibit 18.
70 Dollison also said that he walked along past the Crown Casino and across the bridge to look at the sign. In his opinion an advertiser would place very little value on that pedestrian view. If an advertiser wants to reach that pedestrian view, the advertiser would advertise on street furniture (the sides of bus shelters, advertising around rubbish bins) which is directly in front of where people are walking and looking, and not up in the sky.[89]
[89] Transcript p 316.
71 In cross-examination Dollison conceded that what he was saying was that there were cheaper and more effective alternatives for advertising to pedestrians and train travellers.
72 In cross-examination Dollison conceded that the sign can still be used to hang advertising material from it.[90] People can still see it.
[90] Transcript p 336.
73 Dollison conceded that a person standing at the corner of Flinders St and King St can definitely see the sign.[91] Dollison conceded that there is a substantial amount of people located in and around the Southbank precinct. He also conceded that there is a lot of pedestrian traffic around the casino. Dollison conceded that pedestrians can see the sign as they are coming across the footbridge on King Street.
[91] Transcript p 339.
74 Dollison referred to the Google map exhibit D9 (“the map”). He said that the map shows the extension to the aquarium on the south east corner of King Street and Flinders Street which means that the photograph was taken after 2005. There was a major development in the area which started around 2005 and finished in 2007-2008. The original aquarium was completed in January 2000 and part of the development was to extend the aquarium to facilitate access from Flinders Street.[92] The map also shows the removal of the King Street overpass (the old tram overpass) which used to run parallel to Flinders Street. In November 2005, the King Street overpass was being removed in preparation for tidying up that part of the city for the upcoming Commonwealth Games in Melbourne.[93] Trams now run on alternate routes.
[92] Transcript p 320.
[93] Transcript p 322.
75 Dollison said that the map was taken after 2005 but before 2008, before the construction started of the Northbank Office development. The map shows that there was a still a car park on the old fish market site on the south west corner of King Street and Flinders Street. The Victorian Government ran the car park on the fish market site. It was Crown land. “It was a very narrow pocket of land between the overpass and the rail track, that was just simply, it was almost run down sort of derelict land, it was used for car parking. It was not a very pleasant area.”[94]
[94] Transcript p 321-322.
76 In cross-examination Dollison stated that in the last 14 years the whole area including Docklands has significantly changed. In particular the Southbank precinct has been developed. That includes the Crown Casino complex and all of the office towers and the apartment towers which are behind it, the aquarium and the boulevard that runs down next to the Yarra.[95]
[95] Transcript p 335.
77 Dollison said that as a general rule across the outdoor advertising industry, most of the contracts have built in a clause that if the sign is blocked or impeded in a material way, then the advertising agent can terminate that contract. “As an industry – during my presidency of the outdoor advertising industry, we went to great lengths to ensure that most of the outdoor advertising companies abided by that, to both protect the advertising agents and also the advertisers.”[96]
[96] Transcript p 317
78 In cross-examination Dollison gave the following evidence when he was shown a pro-forma lease with oOh! Media Assets Pty. Ltd.[97]:
[97] Exhibit 17.
Mr Dollison, I just want to hand you
a copy of a (indistinct). I've handed one up there, Your
Honour. Can you have a look at that document? This is
an agreement that - include maybe if you used a
(indistinct) media? --- Yes.
Or oOh!Media use, it's a generic, one that they use for all of
their signboards, if you just assume that fact for the
moment. You gave in evidence before, you mentioned that
you're a part of some association where this topic of
build outs and rights determine the - in agreements
because of build outs and reductions in visibility, was
brought up in your association? I think you said that
you - sorry I want you to answer that - it was brought up
in your association? --- Correct.
I think you said that you went to some lengths to give advice
about this amongst outdoor advertisers, is that correct?
--- Correct.
When about was that? --- This was probably from 2000 through to
2003.
What active steps did you do in relation to that? --- Basic presentations to the major companies, talking with the development officers of the major companies that actually go out and talk to potential sign providers.
In Melbourne, who would they have been? --- They were, in those
days, APN Network, obviously Icorp and other major - some
of the smaller operators like Buckle, IOM, et cetera.
Network became oOh! Media, is that correct? --- Correct.
The point that was - is to make sure that they were protected, witnessed over - - -? --- 1500 sites.
was it, for those sorts of things, to have those
provisions in agreements, in case the word reductions of
visibility or reductions to market value, for example?
--- Correct.
Yes? --- Sites.
Signing - - -? --- (Indistinct) licences, yes.
It's common practice within the industry for all of these agreements to have specific reference to exactly those sorts of things, that is reduction to visibility?
--- Correct.
Or some sort of of a build out? --- That was the recommendation, yes.
That would allow - that would give them a right to terminate?
--- Provided - yeah, provided the other party was happy to
sign that, it gave them the right to terminate.
Yes? --- If there was material blockage.
Can I ask you to have a look at Clause 6 of this agreement?
--- Clause?
Six? --- Six.
It's on p.6? --- Yes.
You'll see 6.1 there, which says option to terminate?
--- Correct.
It says, "If at any time during the term, visibility or profile
of advertising material displayed on the structure, for
the time being erected on the premises, is materially
reduced in any way whatsoever." Secondly, "If by virtue
of any statute," - I'll let that bit go - but if we - it
provides for an option to terminate in those
circumstances, where you've got a reduction in
visibility? --- Correct.
Do you see that? --- I do, yes.
They're the sort of standard terms that you're talking about?
--- That's correct.
Is the reason that you were giving this sort of advice to the
industry, because it's a foreseeable thing? --- That's
correct. Particularly with new players in the industry
that may not be aware of that.
Because obviously, visibility is the No.1 thing that you need
in advertising, isn't it? --- Yeah, for a sign to be
suitable for advertising, it needs to be visible,
otherwise it's not suitable for that purpose.
That's precisely the sort of thing that you need to protect in a contract? --- Correct.
If you have a look at the definition clause of that - are these
sorts of matters that are raised in 621, 622, 623 and
624, that your association was talking to say Network,
about - and by that, I mean reduction in visibility, for
assets defined there through the growth of trees? --- Yes.
That may get in the way of the structure. Also any new
development? --- Yes.
Any new signage which is erected by statutory authority?
--- That may block it, correct, yes.
HER HONOUR: Which clause are you referring to?
MR BARNETT: This is 6.2, the definition section.
HER HONOUR: Thank you. Yes?
MR BARNETT: They're all pretty good things to put into a contract? --- Yes.
In your experience? --- Yes.
Outdoor advertising? --- Where you can get that - is included
with the landlord, we would recommend they go in and
correct it, yes.
….
Of those – all the major players, have those types of clauses in their agreements?...Well, we recommended that all the major players have those clauses in their leases.[98]
[98] Transcript pp 330 - 333.
79 In cross-examination Dollison agreed that he knows a lot about, and has participated in, the purchase of outdoor advertising companies. When a company takes over another advertising company which possesses a number of advertising sites, the company conducts a thorough due diligence. Part of the due diligence which is conducted is valuing the assets which largely consist of the company’s advertising sites. The assessment involves an evaluation of the risks associated with the advertising sites. Part of any due diligence process would be to go through contracts to determine the risks in relation to each asset. If one had a contract which does not specifically spell out or provide for determination for a reduction in visibility, that is something that would immediately stand out in that due diligence. An amount of risk is associated with those types of contracts that don’t specifically provide for a right to terminate in those sorts of circumstances.[99]
The Buckle site at 500 Flinders Street
[99] Transcript p 384.
80 When asked to compare the site at 500 Flinders Street with 27-31 King Street, Dollison said that the Buckle site had about the same value as the 27-31 King Street site. The traffic view is very much the same.[100] “The height probably counts a little bit against 500 Flinders Street”[101] because the higher the sign, the more likely one is to lose it in the roof of the car when driving. The Buckle sign is also quite visible from the Southbank area.
[100] Transcript p 329.
[101] Transcript p 328.
81 In cross-examination Dollison agreed that the industry has been down 30 per cent over the last 12 months. There was a financial crisis in September 2008. Things went down considerably for six months, if not three quarters of the year for a period of time after that.[102] It is picking up slowly.
[102] Transcript p 386.
82 Dollison also agreed that there had been quite a proliferation of boards in the last 10 or 15 years.
John Andrew O’Neill
83 John Andrew O’Neill was a director of Media Puzzle Pty. Ltd. He signed the sign licence agreement as a director of Power Panels Pty. Ltd. [103] He is now a commercial director at oOh! Media.
[103] Exhibit 1.
84 O’Neill stated that the NEC skin came off sometime between September and October in 2005.
85 O’Neill said that he did not turn his mind to any risks that this site could be built out at the time of the acquisition of this particular site; “knowing the location had been there for such a long period of time and also knowing it was sort of on the back of the pub which was a pretty old building, the likelihood of something being built right on the heart of Flinders Street was pretty unlikely”.[104] However when asked if he had any recollection of the car park which was bordering on Flinders Street and King Street as at November 2005, O’Neill said that he had no recollection of it.[105]
[104] Transcript p 430.
[105] Transcript p 431.
86 After Power Panels sold the site to O’Neill’s business, Media Puzzle, O’Neill marketed the site to major national advertisers.[106] He noted that it was probably one of the most expensive signs that Media Puzzle had acquired and probably the most dominant. The site “was our No.1 location.”[107] Because it was such a landmark location, the selling of advertising was made a lot easier when Media Puzzle Pty. Ltd. had good quality locations like this. They could use the site as the best sign that they had to make deals. As at November 2005 this site would have been in the top six or eight locations in the State.[108]
[106] Transcript p 431.
[107] Transcript p 432.
[108] Transcript p 435.
87 O’Neill conceded in cross-examination that the market had dropped somewhere between 18 and 20 per cent in turnover.[109] The large format outdoor advertising part of the market had been the most affected in the last 12 months. An industry large format would probably be down 15 or 20 per cent. O’Neill said that because of the “GFC [global financial crisis]…, a few of the bigger spenders, automotive, banking and finance got a bit scared”[110] and as a result of that lack of confidence in the marketplace, most of the spending on media was down.
[109] Transcript p 470.
[110] Transcript p 471-472.
88 Both Dollison[111] and O’Neill conceded in cross-examination that the trees on the left hand side of the road would partially obstruct the view of the sign to those travelling north.
Luke Brett
[111] Transcript p 357; photographs 13 and 16 exhibit D8.
89 Luke Brett commenced work as the acquisitions co-ordinator for Media Puzzle Pty. Ltd. in December 2005. He is now employed by oOh! Media as the development and asset manager.
90 Brett said that he became aware of the site at 27-31 King Street Melbourne not long after he joined Media Puzzle Pty. Ltd. He knew that it had been an existing sign for 30 odd years. It had high exposure and visibility and was prominent to road going traffic. Brett said that although the tram overpass was being removed at that stage, the land on the south west corner of King Street and Flinders Street was being used as a car park as it had been for 10 years or more.[112] Brett said that when he commenced work for Media Puzzle Pty. Ltd., he had no knowledge of development at or around the car park.[113] Brett stated:
I never thought that that area would ever be built out. That was the bottom end of town, there had always been a landmark site there. One building in front of it which was a pub, always had been to what I knew and before that you had a road, had a bridge, a car park and then the river, the parkland and the river, so I could never foresee anything being built out in that area coming onto the city
fringe. [114]
[112] Transcript p 481.
[113] Transcript p 481.
[114] Transcript p 482.
91 However in cross-examination Brett stated that the view of the sign is everything in “our” line of business and determines the commercial success and the value of the site. He said that it is foreseeable that things can impede upon that visibility.[115] He agreed that trees and developments can impede upon that visibility. He was shown the google map exhibit D9 and conceded that one could have a build out situation whereby the building next to 27-31 King St such as the Waterside Hotel is redeveloped.[116] Brett agreed that it could turn into an office tower one day.[117] Brett also conceded that it was foreseeable that the land which was used as a car park opposite the site along Flinders Street could have been developed so as to cause an obstruction to the visibility of the sign.[118] Brett agreed that landscapes change. Brett agreed that that is precisely why there are specific provisions in sign licence agreements for these types of occurrences.[119]
Jerrod Joseph Hart
[115] Transcript p 496.
[116] Transcript p 496.
[117] Transcript p 496.
[118] Transcript p 496.
[119] Transcript p 496-7.
92 Jerrod Joseph Hart is the general manager of large format development (being billboards on the roadside) at oOh! Media. Hart has been working with oOh! Media (previously Network Outdoor) since 6 January 2001. He has been working in the outdoor advertising industry for 20 years.
93 Hart was shown the pro-forma lease exhibit 17. Hart said that the pro-forma lease is the standard lease which oOh! Media has used since about 2002 or 2003.[120] Hart agreed that clause 6 of that lease relates to termination by the lessee. He agreed that clause 6.1 relates to reduction of visibility which specifically covers a number of things from the growing of trees to new developments. Hart agreed that these clauses are put into the contract in order to protect the lessee’s asset. Hart agreed that it was foreseeable that there might be a reduction in visibility of a sign.[121] Clause 6 was in the agreement to protect the lessee’s asset and its commitment to the site. Hart agreed that the provision was there because trees might grow in front of a site and reduce visibility. Hart also agreed that another development or redevelopment could affect the visibility of a site and the lessee’s asset.[122] Hart agreed that the licensee protects itself by specifically providing for those possibilities in the contract.[123]
[120] Transcript p 517.
[121] Transcript p 519.
[122] Transcript p 519.
[123] Transcript p 519.
94 Hart said that if the site is taken off the national inventory, it does not go out to anyone.
95 Hart agreed that it has been a pretty tough year for the industry. He noted that the marketplace in the last 12 months has been down some 11 per cent on the year before but that the business of oOh! Media is up some 13 per cent on the year before.
The View
96 On Wednesday 18 November 2009 a view of 27- 31 King Street, Melbourne, was conducted. The purpose of the view was to assist the court in following the evidence of witnesses concerning the visibility of the sign on the roof of the building. The view was divided into three distinct stages, being first a drive north along Kings Way and King Street, second a perambulation along the southern bank of the Yarra River and across the King Street Bridge and third a train journey from Flinders Street Station to Southern Cross Station.
97 The first part of the view consisted of a being chauffeured in a car along Kings Way from Sturt Street, South Melbourne towards the CBD. The purpose of this part of the view was to observe the visibility of the sign for road traffic entering the city. In particular counsel wanted the Court to view the visibility of the sign from the southern end of the King Street Bridge to the corner of King Street and Flinders Street.
98 The billboard was not visible for most of the way across the bridge. After passing under the railway bridge, and up to the intersection of Flinders Street and King Street, the billboard is clearly visible.[124] During the view, when the chauffeured car approached the intersection, the lights were green and so the car did not stop but continued north to the corner of Flinders Lane. However, had the car been stopped by a red light, there would have been an opportunity to view the billboard.[125]
[124] Transcript p 272; Exhibit 3.
[125] Exhibit 3
99 The second part of the view consisted of walking along the southern bank of the Yarra River, in front of the Crown Casino, so as to observe the sign.
100 The sign was only visible for two short sections, near the Queens Bridge and then near the King Street Bridge.[126]
[126] Exhibit 11.
101 The walk continued across the King Street Bridge, again observing the sign from the perspective of pedestrian traffic.
102 For the first half of the bridge the billboard was not visible, because the Northbank Office development blocked the view. The billboard was then clearly visible for the rest of the walk across the bridge until it was obscured by the railway bridge on the northern bank of the Yarra River. After walking under this bridge the billboard was visible again, and to the same extent, as when the chauffeured car crossed the intersection of Flinders Street and King Street.[127]
[127] Exhibit 11, transcript p184 and p203.
103 The final stage of the view consisted of a train journey from Flinders Street Station to Southern Cross Station. The purpose of this part of the view was to travel along the railway bridge that runs parallel to Flinders Street and past the sign. Although the buildings along Flinders Street blocked any view of the billboard until almost at the intersection of Flinders Street and King Street, the billboard was clearly visible for about 100 metres of the journey until the view was cut off by the Northbank office development.
Visibility of the sign - findings of fact
104 and Flinders Street.[128] The Waterside Hotel is on the corner, the Youth
Services run by the Melbourne Mission at number 19 King Street is next to the
[128] Transcript p 600.
It is common ground that there are three buildings between 27-31 King Street Research Consultants at number 25 King Street which is next to the building at 27-31 King Street.[129]
[129] Exhibit 25.
105 It is not disputed that the erection of the Northbank office development has to some extent obstructed the visibility of the sign to traffic travelling towards the city along Kings Way. There is a dispute between the parties as to whether the sign is visible to those vehicles entering the city from the southern end of the King Street Bridge. Having considered the whole of the evidence, I do not accept Dollison’s evidence that the sign is not visible to passengers or drivers of vehicles travelling in a northerly direction along Kings Way. Danaher’s evidence was that the sign was visible just prior to the rail bridge and “then you get one more slightly impeded view as you get under the rail bridge”.[130] The sign is also visible to northbound passengers and drivers stopped at the traffic lights at the intersection of Kings Way and Flinders Street. The visibility of the sign was conceded in the termination letter which states that “passing traffic now need to look skyward to see it when virtually adjacent to the sign”.[131]
[130] Transcript p 272.
[131] Exhibit 3.
106 I also find that the sign is visible to pedestrians walking along the Southbank Boulevard as indicated by the photographs of the sign taken by Nuttal in May 2009 from the corner of Flinders Street and King Street[132], from outside the Waterfront Restaurant at Southbank[133] and from the pedestrian walkway at or about the entrance into the Crown Casino car park on the King Street bridge.[134]
[132] Exhibit 11, p 349.
[133] Exhibit 11, p 350.
[134] Exhibit 11, p 351.
107 The defendant concedes that the document produced by the Department of Sustainability and Environment, entitled Southbank plan, which was published in October 2006 estimates that 20 million people per year visit Southbank. The estimated annual visitor numbers include:
“Crown entertainment complex” - 9 million;
“Southgate” - 7 million;
Arts Centre - 2.6 million;
Exhibition Centre - 1 million;
National Gallery - 0 .6 million.
108 I also find that the sign is visible to passengers travelling on the Pakenham line from Flinders Street Station to the Southern Cross Station.
The right to terminate
109 The defendant submitted that in interpreting the meaning of the termination clause of the contract, the court is required to look at the objective background surrounding facts. Counsel for the defendant, Mr. Rodbard-Bean, referred to the following passage in the decision of the High Court in Toll (FGCT) Pty. Ltd v Alphapharm Pty Limited [135]:
This Court, in Pacific Carriers Ltd v BNP Paribas[136], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[137]
[135] (2004) 219 CLR 165, 179.
[136] (2004) 218 CLR 451.
[137] Citing Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462.
110 The defendant submitted that the objective facts surrounding the entry into the contract were that this was a large “spectacular” advertising billboard positioned to face traffic approaching the CBD along Kings Way and seen by motorists driving from the south and south east of Melbourne. This was one of the busiest traffic flows in Melbourne and when one came over the King Street Bridge, one had a vista of this billboard which was 171 square metres. As traffic came down the hill, it was exposed uninterrupted to this site and the value of the site lay in the traffic flow. The driver or the occupants of the car were exposed to this sign for about 250 to 400 metres. The defendant submits that at the time of the sign licence the purpose and object of the transaction was the display of large advertising to traffic approaching north along Kings Way.
111 Mr. Rodbard-Bean, also referred to the recent decision of Justice Judd in Eastern Health v MIA Victoria Pty. Ltd.[138] However the facts in this case are different from the facts in Eastern Health v MIA Victoria Pty. Ltd.[139] In that case Judd J. was considering the terms of a contract which was incomplete where there was an obvious absence of defining words.[140]
[138] [2009] VSC 105.
[139] [2009] VSC 105.
[140] [2009] VSC 105, para 61.
112 The defendant referred to the licensee’s right to terminate the sign licence agreement pursuant to clause 11. The licencee could terminate the agreement if permits were not obtained (clause11(a)), if any airspace agreement for the use of the site cannot be obtained (clause11(b)), if the site became unsuitable for the permitted use for any reason outside the reasonable control of the licensee (clause11(c)) or if the site is damaged by fire or other disabling cause so as to render the site substantially unfit for the permitted use (clause 11(d)).
113 The termination letter refers to clause 11(c) as the basis for terminating the agreement. The defendant submitted that clause 11(c) is meant to cover the field and allows the licensee to terminate if the site becomes unsuitable for the permitted use for any reason.
114 The defendant referred to paragraph B of the sign licence agreement which contemplates that the licensee will licence the use of the site to “third parties for outdoor advertising and promotional material display purposes”.[141] The defendant submitted that advertising by third parties without the right to display that advertising to the target market would be pointless and display without the effective ability to reach the target audience would be pointless. The whole purpose of this agreement was to enable the end advertiser to display its advertising message to the target market, which is vehicles travelling north along Kings Way. If, for any reason, the site was now rendered unsuitable for that purpose, the defendant had the right to terminate the sign licence agreement.
[141] Exhibit 1.
115 The defendant submitted that the option to terminate contained in the pro- forma contract referred to by Dollison is irrelevant to a consideration of the terms of the sign licence agreement. The parties in this case entered into an agreement which catered for all the circumstances in paragraphs 11(a) to (d) which allowed the licensee to terminate the contract when the site became unsuitable for advertising by third parties to their target market. Unsuitable for any reason covers the field and it was unnecessary to descend to specific examples.
116 The defendant submitted that it is necessary to consider what a reasonable man would think when looking at the sign licence agreement. The defendant submitted that clause 11 of the sign licence agreement is meant to pick up all those acts which would render the site unsuitable for use which would include the reduction in the visibility of the site as a result of a building development.
117 The plaintiffs contend that clause 11 of the agreement is clear and unambiguous. The word “unsuitable” should be given its ordinary meaning. The plaintiffs concede that the construction of the Northbank Tower has reduced the visibility of the site for motorists who are travelling north along Kings Way towards the city but that does not mean that the site cannot be used to display advertising material. The site can still be used to display advertising material and it is in fact currently being used to display advertising material.
118 The plaintiffs submit that there are no specific terms that relate to visibility in the sign licence agreement. As in Scanlan’s New Neon Ltd. v Tooheys Ltd.[142], the plaintiffs or their predecessors had not given any warranties as to the continued visibility of the sign throughout the term of the license agreement. Nor have they or their predecessors made any warranties about the market value of the site to any third party purchaser or any third party advertiser. If the parties had intended for this agreement to be terminated in the event that there was a reduction in visibility, then express provision would have been made for it.
[142] (1943) 67 CLR 169, 197.
119 The purpose of the contract was to display advertising on a sign. This is a very simple agreement between two parties where one party pays the other to use a physical structure on top of a building to display advertising material.
120 In Lion Nathan Australia Pty. Ltd. v Coopers Brewery Ltd.[143] Weinberg J said:
In effect the High Court has determined that, at least when construing commercial contracts, the “surrounding circumstances” or “factual matrix” may be taken into account. This is so in all cases, even if the words at issue are not ambiguous, or susceptible of more than one meaning.
[143] (2006) 156 FCR 1, 11.
121 However although objective context is now admissible even if there is no ambiguity, the objective meaning of the words of a contract document “remains the primary point of departure in the process of construction.”[144] In Ryledar Pty. Ltd. v Euphoric Pty. Ltd.[145] the Court of Appeal quoted with approval the words of the trial judge, Palmer J. Palmer J accepted that ambiguity was not required to allow consideration of context and purpose but stated:
That does not mean when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction…then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation.
When the Court is construing a commercial contract, it begins with the words of the document….But the court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document.
[144] N C Seddon and M P Ellinghaus Cheshire and Fifoot’s Law of Contract (ninth edition, paragraph 10.12).
[145] (2007) 69 NSWLR 603, 626.
122 I accept the plaintiffs’ submission that there is no evidence that the original licensor would have knowledge of matters that were the subject of expert evidence, such as:
(i)
The fact that the value of a site is reflected in the length time it can be viewed. Dollison referred to the dwell time and how far away one has to be;[146]
(ii)
The site is a “spectacular” sign and therefore unique or specialized in its market which is for national advertisers;[147]
(iii)
The size and height of the site needs a longer view, that is 250 metres to 400 metres from the sign to be effective from an advertising perspective;[148]
(iv)
The size of the sign will require an advertiser to spend significantly greater installation and production costs than a standard advertising sign;[149] or
(v)
That the appeal of the site to an advertiser would be based upon the Research and Outdoor Audience Measurement (ROAM) system.[150]
[146] Transcript p 310-311, 314.
[147] Transcript p313.
[148] Transcript p 328, 338, 336 and 357.
[149] Transcript p 347.
[150] Transcript p 266 and 557-558 (Danaher).
123 There is no evidence of any acknowledgment by the plaintiffs as to any of these asserted facts.
124 The plaintiffs referred to the following passage in the judgment of Mason J. in
Codelfa Construction Proprietary Limited v State Rail Authority of New South
Wales [151] (Codelfa):
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
[151] (1982) 149 CLR 337,352.
125 I accept the plaintiffs’ submission that the objective facts known to the parties at the time of entering into the agreement included the fact that since the erection of the sign in 1967 and prior to the execution of the Sign Licence Agreement, considerable development had taken place around the Southbank precinct in the immediate vicinity of the sign facing Kings Way.[152] Further, at the time the parties entered into the sign licence agreement, the sign was visible was not only from Kings Way, but it was also visible to pedestrians from Southbank and to passengers of the trains on the railway which ran past the sign.
[152] Transcript p 335 (Dollison).
126 Having considered the submissions made by the parties and the whole of the evidence, in my view the defendant was not entitled to terminate the sign licence agreement pursuant to clause 11(c) or clause 11(d). Clause 11(c) provides that the defendant was entitled to terminate the agreement if “the site becomes unsuitable for the Permitted Use for any reason outside the reasonable control of the Licensee.” The relevant meaning of “permitted use” is the “use of the site for the display of advertising and promotional material”. The sign remains visible and can be used to display advertising material.
127 The word “unsuitable” should be given its ordinary meaning. The Sign Licence Agreement supports such an ordinary reading. Clause 1 states that “unless otherwise defined, words appearing in bold have the meaning given to them in the Schedule attached.” The term “unsuitable” in clause 11(c) is not in bold, and accordingly the parties to the agreement have not agreed on any special definition of the term. The Oxford English Dictionary defines suitable as fitted for a purpose.[153] Accordingly “unsuitable” in the Sign Licence Agreement is something not fit for the permitted use.
[153] Oxford English Dictionary (2nd ed), volume XVII, p 150.
128 The sign is fit for the purpose of displaying outdoor advertising. This is evidenced by the fact that the defendant continued to use and sell the site to national advertisers and continued to receive income from February 2008 until after the notice of termination on 29 September 2008.[154] During that period various national advertisers such as Toshiba, Calvin Klein, Crazy John’s and Betstar used the site to display their advertising and promotional material. In fact Dollison conceded that if national and international advertisers such as Crazy Johns, Betstar and Fosters group were prepared to pay money for the site after it had been blocked by the Northbank office development, then it did have some value. In cross-examination Dollison also conceded that the Tramps sign is of some benefit to Tramps and agreed that one can see it as it is right in front of you if you are walking over the foot bridge.[155] Dollison accepted that the sign has some value and benefit.
So do you say that sign's of no value? --- I'd say it's of limited value, yes.
What would you - what would be the market for that? --- I
couldn't tell you. I would imagine it's probably a $4000
a month, $3000 a month sign.[156]
[154] Exhibit D 23.
[155] Transcript p 348.
[156] Transcript p 382.
129 The continued suitability of the sign is supported by the fact that the plaintiffs have entered into an agreement with Bilmor Holdings Pty. Ltd., who are presently displaying outdoor advertising and promotional material at the rate of $45,000 for six months.[157]
[157] Exhibit 5.
130 Further although the sign cannot be seen from 400 metres away on the Kings Way bridge, all of the northbound traffic along Kings Way still has some visibility once it passes the Northbank tower or comes under the bridge.[158]
[158] Transcript p 272 .
131 The language used in clause11(d) is different from the language in clause 11(c). Clause 11(d) refers to a right to terminate where the site becomes “substantially unfit” whereas clause 11(c) only permits the defendant to terminate the sign licence agreement if the site becomes “unsuitable” for the permitted use. The difference in language tends to support the plaintiffs’ submission that the site is not “unsuitable” for the permitted use of displaying advertising and promotional material.
[239] Exhibit 5.
[240] Exhibit 5.
[241] Exhibit 1, clause 4.
194 It is to be noted that the contract price for the new agreement was $45,000 (excluding GST) for 6 months, although the plaintiffs in actual fact received $38,500 (including GST). This was because the new agreement provided for a discount if the new licensee paid before the commencement date, which it did.[242] The defence did not dispute that $45,000 was the proper amount, and it is clear that this is the correct approach. The plaintiffs, in essence, gave the new licencee a discount for an earlier payment and the plaintiffs are “fully entitled to be as extravagant as he please but not at the expense of the defendant”.[243]
[242] Exhibits 5, 6 and 7. See paragraph 26 above.
[243] Darbishire v Warran [1963] 1 WLR 1067 CA (per Pearson LJ). Cited in McGregor, McGregor on Damage p
195 The real question is to what extent the plaintiffs’ damages should be reduced for the period from 1 April 2010, being the expiration of the first six months of the new agreement, until 30 December 2010 when the old agreement was due to expire. As noted above the new agreement has an optional 6 months extension, which would result in the plaintiffs receiving fees at $45,000 for 6 months until 1 October 2010. This would leave two months to account for.
196 In Driver v War Service Homes Commissioner[244] Irvine CJ of the Supreme Court of Victoria held that where there has been a repudiation:
The ruling principle which governs the measure of damages is that the party complaining should as far as it can be done by money be placed in the same position as he would have been in if the contract had been performed: Wertheim v Chicouimi Pulp Company [1911] AC 301 at 307. This does not necessarily mean that he is entitled to get the whole profits that he would have made under this contract. The effect of the release from the performance of the obligations of the contract may itself enable him, in the ordinary course of his business to make profits which he could not have made had he been obliged to carry out the contract. Such profits when ascertained or estimated must go to reduce the amount of profits he would have made in his contract. It is sometimes said that it is his duty to do what is reasonable to mitigate his damages.
[244] (1923) Australian Law Times 130, 134.
197 That principle was accepted in TCN Channel 9 v Hayden Enterprises.[245] In the present case it is unclear at this stage to what extent the plaintiffs will be able to mitigate their damages in the period from May 2010 to December 2010. “Mitigation” in this sense is a factor to be taken into account in fixing the appropriate amount of damages, so that the plaintiffs are placed in the position they would have been had the agreement not been terminated.[246]
[245] (1989) 16 NSWLR 130,133.
[246] Greig and Davis, The Law of Contract, p 1388.
198 In Luxer Holdings Pty Ltd v Glentham,[247] Buss JA concluded that the method of determining damages depended upon whether the trial was heard before or after the agreement would ordinarily have expired. In relation to trials heard before the end of the agreement, such as this case, Buss JA stated that:
Where the trial of the lessor’s action occurs before the term of the lease would otherwise have expired, the normal measure of damages is the total rent and outgoing etc that would otherwise have been payable after the date of termination, less:
[247] [2007] WASCA 209.
[248] [2007]WASCA 209 at paragraph 38. Special leave was refused by the High Court in Luxer Holdings Pty Ltd v Glentham Pty Ltd [2008] HCATrans 158.
(a) any amount the lessor has obtained as profits from the use of the premises between the date of termination and the date of trial; and (b) any amount the lessor is likely to obtain as profits from the use of the premises between the date of trial and the date on which the lease would otherwise have expired, by re-letting the whole or part of the premises or otherwise.[248]
199 Such an approach to the present case would also be consistent with the observations of Hope JA in TCN Channel 9 v Hayden Enterprises. He said:
In my opinion, consistently with the many authorities which establish that regard can be had to evidence of facts between the time when a cause of action arises and the time of trial in order to produce certainty where there would otherwise be uncertainty, the general preference of the law for fact rather than hypothesis is applicable to the principle under consideration. That principle does not require the assessment of damages to be based on a fiction in disregard of the actual facts.
200 In light of the comments of Buss and Hope JJA, in my view the fact of the new agreement makes it ‘likely’ that similar agreements involving similar sums could be entered into, even if the renewal option under the new agreement is not taken up. Further, Diver suggests a duty to attempt to enter such further agreements for the life of the terminated agreement, that is to December 2010.
201 Accordingly the amount that the plaintiffs are likely to obtain is a further $45,000 for the six months from May 2010 to October 2010 and $7500 for each of the months of November and December 2010.
202 Although the defence suggested that $10,000 was a better estimate of the site’s monthly value, on the basis of the rent received by what was referred to as the comparable site of 500 Flinders Street (the Buckle sign), the evidence before the Court is that at present the site at 27-31 King Street commands a monthly income of $7,500.[249]
Payment of rent of $4106
[249] Transcript p 716.
203 After the reasons for judgment were delivered on 12 March 2010, I invited counsel to make submissions on costs and interest. Both counsel indicated that they required time to consider the question of costs because of issues arising out of the making of several Calderbank offers. Mr. Rodbard-Bean also indicated that he had been instructed that the defendant had paid the plaintiffs an additional payment of rent of $4106 plus GST. This payment had not been pleaded and had not been raised during the course of the trial. Accordingly I made the following orders:
1. That on or before 4pm on 16 March 2010, the plaintiffs make file and serve its written submissions (of not more than 12 pages) concerning:
(1) the payment of rent of $4106 plus GST;
(2) the calculation of interest on the amount of the judgment; and
(3) the Calderbank offers.
2. That the defendant make file and serve its written submissions in reply (of not more than 12 pages) on or before 4pm on 19 March 2010.
3. Adjourn the hearing of submissions on costs and interest until 23 March 2010 at 10.30 am.
204 On 23 March 2010 I heard submissions on costs and interest. On that day the plaintiffs conceded that the payment of $4106 plus GST had been made to them in October 2009, one month before the trial.[250] The plaintiffs conceded that the damages awarded to the plaintiffs should be reduced by that amount.
Discount for accelerated payments
[250] Transcript p 14.
205 Under the heading of Mea Culpa in the defendant’s written submissions dated 19 March 2009[251], Mr. Rodbard-Bean sought to reopen the defendant’s case. He submitted that the damages awarded to the plaintiffs for loss of licence fees should be discounted to obtain the net present value.
[251] Exhibit D27.
206 In paragraphs 9 and 10 Mr. Rodbard-Bean submitted:
9. The net present value of $263,608.31 as at 20 November 2009 (the date acceptance of repudiation), payable monthly $14,208.33 from 1 October 2008 until 31 December 2010, using a discount rate of 8%, is $248,830.49. The net present value calculation worksheets are attached. A discount rate of 8% has been selected as this rate best approximates the applicable cost of interest in the commercial market place. Alternative calculations of discount rates at 6% through to 10% are annexed hereto.
10. The net present value of $263,608.31 at a lower discount rate of 6% is $252,290.41, while the net present value of $263,608.31, using the higher rate of 10% is $245,411.00.
207 Mr. Rodbard-Bean referred to Gumland Property Holdings Pty. Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited[252]. However in the defendant’s written submissions and the very detailed calculations annexed to those submissions, the defendant claims that it is entitled to a discount for payment of licence fees from the date of the acceptance of the repudiation of the sign licence agreement. This is despite the fact that the defendant had not paid the rent due under the sign licence agreement from the date the sign licence agreement had been repudiated. The defendant would not be entitled to a discount in respect of payments of rent due before an order is made for the payment of that rent because it could not be said that the payment of that rent is accelerated. Accordingly the defendant would not be entitled to a discount for accelerated payments of rent for the months of December 2008 and January – December 2009, and January – February 2010.
[252] [2008] 234 CLR 237.
208 In Copperart Pty. Ltd. v Bayside Developments Pty Ltd [253] the Full Court of the Supreme Court of Western Australia stated:
…upon the repudiation of the agreement to lease, the acceptance thereof and the termination of the agreement, Bayside became entitled to damages for the breach of the agreement, assessed in the ordinary way by the ordinary contractual measure. The damages to be awarded are for the loss of the bargain: Progressive Mailing House Pty. Ltd. v Tabali Pty. Ltd. The measure of damages is taken to be the difference between the benefits in rental and outgoings (in this case) which Bayside would have received for the balance of the term, less any benefit of that kind which it has in fact received by re-letting the premises pursuant to its obligation to mitigate its loss, subject to a discount in an appropriate case (which is not this case) for the acceleration of the compensation obtained: Hughes v NLS Pty Ltd [1966] WAR 100. It was upon that basis that the learned trial Judge in this case proceeded to make in assessment of damages.
[253] (1996) 16 WAR 396, 413.
209 In Luxer Holdings Pty Ltd v Glentham Pty Ltd[254] the Court of Appeal of Western Australia held that there would be no occasion to discount the value of the benefit received by the lessor if the lease had run its full term “because of a benefit for accelerated receipt - if anything, the aggregate should be increased by a component of interest to compensate for delayed receipt of benefit.”
[254] [2007] 35 WAR 254, 293.
210 After obtaining instructions from his client, and having regard to the sums involved and the probable cost consequences, Mr. Rodbard-Bean advised the court that the defendant did not propose to persist with its application to reopen the defendant’s case. However as a matter of fairness, Mr. Barnett advised the Court that the plaintiffs were prepared to concede that a discount of 6% should be applied to the damages awarded in favour of the plaintiffs insofar as those damages related to the payment of rent for the months of 1 April 2010 to 1 December 2010.[255] The plaintiffs were prepared to concede that the net amount to be deducted for those months from the damages awarded in favour of the plaintiffs (after deducting the benefits that the plaintiffs would have received by re-letting the premises pursuant to its obligation to mitigate its loss), using a discount rate of 6%, is $3217.
The number of refreshers
[255] Transcript p 11.
211 Mr. Rodbard-Bean submitted that an order should be made that the defendant pay party/party costs. Both parties agreed that in addition to the brief fee, the appropriate number of refreshers is seven. However Mr. Rodbard-Bean submitted that the number of refreshers should be reduced to five because the plaintiffs’ conduct unnecessarily extended the trial of the proceeding. He referred to Markovic v Ford Motor Company of Australia Ltd. [256] In that case Brooking JA stated:
A judge asked to certify for refreshers at the end of a long trial should not concern himself simply with the calculation of the number of hours for which the trial has endured. If, in his view, after making all due allowances, the trial has taken substantially longer than it ought reasonably to have done, he should turn his mind to the question of responsibility for the length of the trial. It may well be appropriate for the judge, after hearing submissions, to reflect his view on responsibility in the order for costs made, whether in certifying for refreshers or in determining in some other and more general way that some part of the trial or some proportion of its costs should be excepted from the order for costs to be made.
[256] [1998] 1 VR 235, 240
212 Mr Barnett submitted that it was necessary for the plaintiffs to make an application to obtain the defendant’s accounting records (referred to in paragraph 27(b) of the defendant’s written submissions), at the start of the
trial in this Court, because the defendant amended its pleading on the first day of the trial. Mr. Barnett further submitted that the totality of the time that was lost by the plaintiffs’ overall conduct was in the region of about one hour
and thirty five minutes.
213 Mr. Rodbard-Bean submitted that the defendant should be entitled consequently to two refreshers at the trial and 25 per cent of the trial costs.
214 Having considered the submissions made by counsel, I have decided to reduce the number of refreshers to be paid by the defendant to the plaintiffs to 6. I do not accept the defendant’s submission that the plaintiffs should pay the defendant’s costs of two refreshers or 25% of the defendant’s costs of the trial.
Indemnity Costs –Calderbank offers
215 The plaintiffs submitted that the defendant should pay the plaintiffs’ costs of these proceedings on a party/party basis from the date the proceedings were issued until 4 November 2009 and from that day forward on an indemnity basis or alternatively on a solicitor/client basis from 5 November 2009 due to the plaintiffs’ Calderbank offer which was made on 5 November 2009.
216 The first Calderbank offer was made by the defendant on 21 October 2009 in the following terms:
We note that the matter is listed for trial on 11 November 2009 with an estimated duration of 3 to 4 days. Our client is prepared to make a commercial offer to settle this matter in an attempt to avoid the substantial costs of trial.
In summary, our client is prepared to offer your clients the sum of $120,000 plus GST and to take a new licence over of the site at $5,833.33 per month, following the expiration of the Bilmor Holdings’ Sign Licence Agreement, in full and final settlement of the matter.
Our client’s offer is set out in detail below.
The offer is made on the basis that your clients’ claim against oOh!media Roadside Pty Ltd (oOh!media) is dismissed and that oOh!media’s counterclaim against your clients is dismissed with no orders as to costs. In making this offer our client is offering to compromise the significant costs it has occurred to date in defending the matter.
Please note that this offer is open for acceptance until close of business on
Friday, 30 October 2009 after which time it will lapse.
This letter is written relying on the principles in Calderbank v Calderbank [1975] All ER 333, Cutts v Head [1984] Ch 290 and subsequent authorities. In the event that the matter proceeds to hearing and your clients obtain a verdict which is no less favourable to them than the terms of this offer, our client will apply for an order that its costs of the proceeding be paid by your clients on an indemnity basis.
There are two preconditions to our client’s offer which are as follows:
New Sign Licence Agreement
oOh!Media requires a Sign Licence Agreement, in the form of its standard form
licence agreement, adapted as necessary. This was discovered by oOh!Media
and will be familiar to your clients. The development currently blocking the site
will be carved out from the standard form licence agreement.
Planning Permit
oOh!media will not assume the risk of obtaining a permit for the site. Your clients must allow oOh!media to use the site for advertising and will assume all risk in respect of any enforcement proceedings or notices issued by the Melbourne City Council (MCC). If the MCC prohibits the use of the site for advertising then oOh! Media will be able to terminate any new agreement as of right.
Offer
to make the following offer to your clients:
1. Payment of $120,000 plus GST, which will be paid seven (7) days from the date of execution of suitable terms;
2. Our client will pay to your clients a monthly licence fee of $5,833.33 plus GST commencing either:
a. if the Bilmor Holdings’ option is not exercised – from the expiration of the Sign Licence Agreement with Bilmor Holdings on 30 April 2010 until 31 December 2010, being the expiration date of the former Sign Licence Agreement between the parties, a total of $46,667 plus GST (8 months); or b. if the Bilmor Holdings’ option is exercised – from the expiration of the Bilmor Holdings’ option on 31 October 2009 to December 2010, a total of $11,667 plus GST (2 months). 3. Your clients’ claim against oOh!media is to be dismissed and oOh!media’s counterclaim against your clients dismissed with no orders as to costs.
We look forward to receiving your clients’ response on or before 30 October
2009.
217 By letter dated 5 November 2009 and marked “without prejudice save as to costs”, the plaintiffs rejected the defendant’s Calderbank offer set out in the letter of 21 October 2009. The plaintiffs made a counteroffer to settle the proceeding in the following terms:
1. Your client pays our client $120,000 plus GST, to be paid within seven days of execution of a suitable deed of settlement;
2. Your client pays our client a monthly licence fee of $8,600 plus GST commencing either:
2.1
If the Bilmor Holdings option is not exercised – from the expiration of the Sign Licence Agreement with Bilmor Holdings on 30 April 2010 until 30 December 2010, being the expiration date of the former Sign Licence Agreement between the parties; a total of $68,800 plus GST (8 months); or
2.2
If the Bilmor Holdings option is exercised – from the expiration of the Bilmor Holdings option on 31 October 2010 to 31 December 2010; a total of $17,200 plus GST.
3. The deed of settlement contains, inter alia, a clause enabling the proceeding to be reinstated and judgment to be entered against your client in the event of default.
4. The parties sign consent orders dismissing the proceeding with a right of reinstatement in the event of a default by your client in the deed of settlement, and no order as to costs.
The offer is open for acceptance until 4.00pm on Friday 6 November 2009, after which time the offer will lapse.
This offer is put pursuant to the principles enunciated in Calderbank v Calderbank (1975) 3 All ER 333, Cutts v Head (1984) 1 All ER 597 and MT Associates Pty Ltd v Aqua Max Pty Ltd (3) [2003] VSC 163 and will be relied upon on the question of costs in the event that the offer is rejected or not accepted.
In the event that this offer is rejected or not accepted and you receive the benefit of an Order or orders from the Court which are no better than the offer referred to above then we will rely upon the terms set out in this letter in an Application for costs – both in terms of limiting the costs that should be paid to your client and in terms of seeking an Order that your client pay our client’s costs.
218 That offer was forwarded to the defendants on 5 November 2009. This was the Thursday before the trial was to commence on the following Wednesday on 11 November 2009, and it was set to close at 4pm on Friday 6 November 2009.
219 In Aljade and MKIC v Oversea-Chinese Banking (“OCBC”) [257] Redlich J rejected the presumption that a party rejecting a Calderbank offer should pay the offeror’s costs on an indemnity basis if the offeree receives a less favourable result. Redlich J held that the weight of authority:
…strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order. It will do so where it is concluded that the rejection of the offer was unreasonable.
[257] [2004] VSC 351, paragraph 75.
220 In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) the Court of Appeal agreed with Redlich J’s conclusion. The Court of Appeal stated that the critical question is whether the rejection of the offer was unreasonable in the circumstances.[258]
[258] (2005) 13 VR 435, 441.
221 A court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree’s prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.[259] (a) the stage of the proceeding at which the offer was received [259] Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 442.
222 The first matter is the stage of the proceedings at which the offer was made. The offer was received on the eve of the trial at a stage when a substantial amount of the costs had already been incurred.[260]
[260] See Trueenergy Pty. Ltd. v Dispute Resolution Panel (No 2) [2009] VSC 612.
(b) the time allowed to the offeree to consider the offer 223 The offer was only open for 30 hours. The plaintiffs submitted that the time of 30 hours allowed to the offeree to consider the offer was reasonable. Mr. Barnett submitted that the terms of the plaintiffs’ offer were almost identical to the terms of the defendant’s offer.
224 I do not accept the plaintiffs’ submission. In its Calderbank offer, the defendant offered to enter into a sign licence with the plaintiffs on the terms of the plaintiffs’ standard proforma licence agreement which the plaintiffs had discovered[261] if Bilmor Holdings Pty. Ltd. did not exercise its option. The plaintiffs’ Calderbank offer of 5 November 2009 was silent as to the terms of the sign licence agreement. Nothing was said about the standard terms which the plaintiffs proposed. There was no reference to the standard lease agreement or even a reference to the existing sign licence agreement which had been terminated. The offer was incapable of acceptance because the terms of the payment of the licence fees and the obligations between the parties had not been dealt with.
[261] See exhibit 17.
225 The defendant’s offer referred to the assumption of the risk of obtaining a permit for the site. The defendant stated that it would not assume the risk of obtaining a permit for the site and stipulated that the plaintiffs would assume that risk. This was a live issue between the parties at the time the offer was made.[262] The plaintiffs’ letter was silent on this issue. The legality of the permit issue was not put to rest until receipt of the advice of Townsend SC on the seventh day of the trial, on 20 November 2009. In exercising its discretion, the court is required to consider the circumstances existing at the time the offer was made and, in judging the conduct of the offeree, avoid the perils of hindsight.[263]
[262] See paragraph 12(e) defence and counterclaim filed 13 February 2009.
[263] Richfield Investments Pty Ltd v Oversea-Chinese Banking Corp [2004] VSC 351.
226 The defendant’s offer was open for nine days. On 5 November 2009, some 16 days after the defendant’s offer was made, the plaintiffs’ solicitors wrote to the defendant’s solicitors rejecting the offer. Although the plaintiffs made a counteroffer seeking to increase the rental to be paid if the Bilmor Holdings Pty. Ltd. option was not exercised, nothing was said about the terms proposed by the defendant for the payment of rent; nothing was said about the assumption of the risk of obtaining a permit.
227 I accept the defendant’s submission that the time given by the plaintiffs to the defendant to accept the plaintiffs’ offer was not reasonable. The offer was made on the eve of the trial; the trial was due to commence on Wednesday 11 November 2009. The defendant was at that time engaged in preparation for the trial. The plaintiffs had only recently on 9 October 2009 entered into a sign licence agreement with Bilmor Holdings Pty. Ltd. The defendant had issued subpoenas in relation to that lease and had not had yet had the opportunity to inspect the documents produced in response to its subpoena.
228 By letter dated 6 November the defendant’s solicitors wrote to the plaintiffs’ solicitors advising that the defendant was not in a position to formally respond to their client’s offer and that “the timeframe of 30 hours is unrealistic and it is for your client to consider whether such expiry ought to be extended or not.” The plaintiffs did not reply to the defendant’s letter.
229 Mr. Barnett sought to rely on a letter dated 5 November 2009 by the defendant’s solicitors to the plaintiffs’ solicitors which was inadvertently attached to the defendant’s submissions (“the unsigned letter”). The letter was not signed and had never been sent to the plaintiffs. Mr. Barnett conceded that the letter had not been received by the plaintiffs.
230 Mr. Rodbard-Bean objected to the admission of the unsigned letter into evidence. The letter is privileged and was attached to the defendant’s submissions inadvertently.
231 Mr. Barnett referred to s.122 of the Evidence Act 2008. There is some uncertainty as to whether the provisions of the Evidence Act 2008 apply to the admissibility of the unsigned letter because the hearing of the proceeding took place before the commencement day of that act (1 January 2010). Section 122 of the Evidence Act 2008 provides that evidence can be adduced if the client has acted in a manner inconsistent with the client objecting to the adducing of the evidence. However s.122(3) provides that a client is taken to have so acted if:
(a)
the client or party knowingly and voluntarily disclosed the substance of the evidence to another person; or
(b)
the substance of the evidence has been disclosed with the express or implied consent of the client or party.
232 Even if the provisions of s.122 of the Evidence Act 2008 apply to the inadvertent attachment of this letter to the defendant’s written submissions dated 19 March 2009[264], I am not satisfied that the defendant (“the client”) knowingly and voluntarily disclosed the substance of that letter to the plaintiffs. I am not satisfied that the contents of the letter have been disclosed with the express or implied consent of the defendant. I accept Mr. Rodbard-Bean’s submission that the defendant’s unsigned letter dated 5 November 2009 was inadvertently attached to the defendant’s written submissions.
[264] Exhibit D 27.
233 In any event, I do not accept Mr. Barnett’s submissions that the letter is highly probative. The letter was unsigned and had not been sent. Any submissions made by Mr. Barnett as to whether or not the defendant’s solicitors sought or were able to obtain instructions in the terms of that letter are speculative. In these circumstances it is not possible to draw inferences from the terms of that letter as to whether the defendant provided instructions to respond to the Calderbank offer in the terms set out in that letter. Assertions concerning the defendant’s state of mind based upon reading that letter cannot be sustained in the absence of further evidence.
234 Having considered the submissions made by both counsel, I do not propose to admit the unsigned letter dated 5 November 2009 into evidence.
235 In my view the time allowed for the acceptance of the offer was unreasonable in all the circumstances of this case.
(c) the extent of the compromise offered 236 I accept the plaintiffs’ submission that the sum claimed by the plaintiffs was higher than the offer made by the plaintiffs in their Calderbank offer.
(d) the offeree’s prospects of success, assessed at the date of the offer 237 Although the plaintiffs succeeded at the hearing on all three primary issues in dispute, the defendant considered that it had an arguable defence to the plaintiffs’ claim.
238 As stated by Weinberg J in Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No.2)[265]:
The Full Court in Black v Lipovac emphasised that the mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs. The offeror needs to show that the conduct of the offeree was unreasonable. Moreover, the reasonableness of that conduct must be viewed in light of the circumstances which existed at the time the offer was rejected. The fact that the applicants ultimately failed to make good their case does not mean that they acted unreasonably in rejecting the initial offer. Nor does the fact that that initial offer was itself reasonable mean that it was unreasonable to reject it.
…The fact that the offeree was ultimately unsuccessful in the litigation, and could have accepted a reasonable settlement at an earlier stage does not of itself show that the course adopted by the offeree was relevantly unreasonable or imprudent.[266]
[265] (2002) 190 ALR 121, 127.
[266] (2002) 190 ALR 121, 127 and 128.
(e) the clarity with which the terms of the offer were expressed 239 I accept the defendant’s submission that the plaintiffs’ offer to accept the payment by the defendant of a monthly licence fee was uncertain because the offer did not specify the obligations and terms and conditions upon which that licence fee would be paid. The defendant was not in a position to accept the plaintiffs’ offer by 4.00 pm on the next day because the basis on which it could be accepted was not certain.
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it. 240 The offer contained in the plaintiffs’ letter dated 5 November 2009 did not foreshadow an application for indemnity costs in the event of rejection by the defendant. The plaintiffs merely stated that:
In the event that this offer is rejected or not accepted and you receive the benefit of an Order or Orders from the Court which are no better than the offer referred to above then we will rely upon the terms set out in this letter in an Application for costs – both in terms of limiting the costs that should be paid to your client and in terms of seeking an Order that your client pay our client’s costs. (emphasis mine).
Was it unreasonable for the defendant to reject the plaintiffs’ offer at the time it was made?
241 The onus of showing unreasonableness is on the offeror.[267] I have considered each of the factors that need to be considered according to Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2)[268]. In my view that onus has not been discharged. I am not satisfied that it was unreasonable for the defendant to reject the plaintiffs’ offer. Taking all of these factors into account, I am not persuaded that it would be appropriate to depart from the ordinary principle that costs should be assessed on a party- party basis. I refuse the plaintiffs’ application for the payment of costs on an indemnity basis or alternatively on a solicitor/client basis from 5 November 2009.
[267] Trueenergy Pty. Ltd. v Dispute Resolution Panel (No 2) [2009] VSC 612, para 8; Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No.2) (2002) 190 ALR 121, 125 and 127.
[268] (2005) 13 VR 435, 442.
242 Orders
(1) There will be judgment for the plaintiffs for the sum of $260,391.40 which is
made up as follows:
•
$383,625.00 being the loss of the licence fee for the remaining term of the sign licence agreement; less
o $3217 discount for accelerated payments of rent for May –
December 2010;
o $4516. 60 being payment of rent inclusive of GST; o $49,500.00 being the amount the plaintiffs have obtained from Bilmor Holdings for the period October 2009 to April 2010 including GST; less
o $49,500.00 being the amount the plaintiffs are likely to obtain for the period from May 2010 to October 2010 (including GST); less o $16,500 being the amount the plaintiffs are likely to obtain for the months of November 2010 and December 2010 (including GST).
(2) That the defendant pay interest to the plaintiffs fixed at $39,852.53. (3) That the defendant’s counterclaim be dismissed. (4) That the defendant pay the plaintiffs’ costs including reserved costs on
a party/party basis to be taxed on scale D in default of agreement.(5) I certify for a brief fee and six refreshers. (6) That the defendant pay the plaintiffs’ costs of the hearing on 12 March 2010 and 18 May 2010 on a party/party basis to be taxed on scale D in default of agreement. (7) That each party bear its own costs in relation to the hearing on 23
March 2010.
13.
NSWSC 1014 at paragraph 9; Fresh Express Australia Pty Ltd v Larridren Pty Limited [2002] FCA
1312 at paragraph 124.
241 [7-017].
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